2009 – A Crystal Ball
By Larry Merkow, President
Total Financial Management, Inc.
It's the first week of January 2009 (but you are reading this in February) and the financial pundits are still speculating about whether the U.S. government has the knowledge or the economic wherewithal to lend its way out of the financial dilemma we find ourselves in. While they are doing that, what should you be doing? Do you know?
I've been asked if I have a crystal ball for 2009. First, there is no crystal ball. Do I know what you should do? The answer is yes and no. The government has never been known for its ability to manage financial problems and/or be fiscally responsible. So my crystal ball says, with respect to your financial well being, do not rely on the government or its panacea bailout programs. We can rely on history to give us some access to the truth of our financial reality. The -33.8 percent return in the Dow Jones Industrial Average for 2008 is the third worst on record, as noted by Chart of the Day:
That means it has to gain about 68 percent just to get even. According to Bolt and Ramsperger of Alpha Plus Advisors, LLC New York, “Historically, market recoveries have lasted approximately 470 trading days (median of 22.5months), and produced an average gain of over 60%.” In other words, there’s not much hope in 2009 and most of 2010, if those years even fall within the average. So much for the market.
Let's look into a real, viable crystal ball for success in the coming months and years.
- Pay off your revolving credit cards. The average credit card rate is 17.6%. Where can you get that rate of return guaranteed?
- Liquidity and safety of principle are of paramount concern during most times but especially during uncertain economic periods. Find an honest and competent financial advisor and consider
fixed annuities as part of your investment portfolio. Fixed annuities are guaranteed and conditionally liquid.
- Do a business plan. Planning (in writing) helps you to foresee future problems and financial pitfalls.
- Consider restructuring your business entity. Different business structures have different tax rates and they allow you to legally take certain business costs as tax deductible expenses. The overall rate of return could be substantial.
- Make a personal financial statement. Each person in your household spends money. If each of you keeps track of how you spend that money you will discover how much of it is spent unnecessarily and or habitually.
- Purchase assets that appreciate. Rent assets that depreciate.
- Know what your return on investment will be before you make a purchase. Understand the difference between rate of return and yield.
- Ask your accountant about above the line and below the line expenses and how they are different.
- Maintain your vehicles religiously. They are your second greatest investment.
- Use professionals. The way to trust is to become educated. Learn about the professionals in your life. Do not judge them by their credentials or degrees. Ask them questions. Be clear with them that you will interacting with them and that their advice must be clear. Whether or not you understand what they tell you is your responsibility. If you do your own taxes, make your own investments, write your own legal documents or do your own surgery the odds are against you.
Is there a crystal ball for financial security and economic well being? Yes there is. Become educated and knowledgeable about financial matters. Plan and act with finesse. Use professionals that have your best interest in mind and never be afraid or embarrassed to ask questions. Do not act until you understand. I believe that these are the elements to your crystal ball.
For more information on financial planning in this economy, contact Larry at (559) 326-2027 or via email at lmerkow@tfminc.us.
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